Egypt tackles energy crisis

23 December 2015

Cairo has laid the groundwork for a further significant increase in generating capacity

The turnaround in Egypt’s energy balance over the past two to three years has been dramatic. By the end of 2016, electricity-generating capacity will be comfortably above peak load, with a surplus of up to 15 per cent, according to some industry estimates.

The fuel crisis that has beset the power sector will also be resolved, with regular shipments of imported liquefied natural gas (LNG) and the prospect of substantial new volumes of natural gas coming on stream from fields in the Mediterranean.

Big improvement

All this is in stark contrast to 2012 and 2013, when power cuts were a part of daily life, due to chronic fuel shortages and a generating capacity deficit of more than 3,000MW.

The improvements resulted from a combination of the completion of several projects that had faced delays and the implementation of emergency measures, in particular the fast-track installation of 3,600MW of new capacity and the commissioning of two LNG import terminals.

The government is now focusing on ensuring there will be sufficient electricity supply to sustain a steady increase in economic growth over the medium term, while diversifying the power sector to reduce reliance on natural gas, notably through renewable energy and the launch of Egypt’s first nuclear power scheme.

El-Sewedy success

The impact of the rapid growth of the power sector can be gauged from the most recent financial results from El-Sewedy Electric, one of the largest listed companies active in the sector.

El-Sewedy’s gross revenue in January-September 2015 increased by 21 per cent year-on-year to £E15.5bn ($2bn). Its backlog of work under way had reached a record of E£14.2bn, of which 83 per cent was within Egypt.

Among the projects El-Sewedy is working on is the 4,800MW combined-cycle complex in Beni Suef, to the south of Cairo, for which Germany’s Siemens is the main contractor. The company says progress has been brisk, with the first unit on track to start up by the end of 2016 and the entire project to be completed by the end of 2018.

El-Sewedy is also one of the investors in the 4,300MW renewables programme being carried out under a guaranteed feed-in tariff system.

Norway’s Scatec Solar is playing a leading role in this programme, and has announced plans to invest $600m in five 50MW solar projects, three in Benban and two in Zaafarana. Scatec is the lead developer in one of these projects, and is partnering with Egyptian and other investors on the remainder.

The investors are working through the various stages of project documentation covering their contractual relationships with the Egyptian Electricity Transmission Company (EETC), which will be the offtaker. El-Sewedy says it expects to reach financial close for its 50MW project in Benban in the fourth quarter of 2016.

One of the advantages of the Benban site is that it is close to the 2,000 MW Aswan High Dam hydroelectric plant, which means there is abundant transmission infrastructure in the area. Nevertheless, the investors are depending on EETC to build additional substations.

Egypt’s electricity sector
 2009/102010/112011/122012/132013/14% change
Peak load (MW)22,75023,47025,70527,00026,140-3.2
Total power generated (GWh), including139,000146,796157,406164,628168,0502.1
Fuel consumption (ktoe), of which26,77227,43029,72831,75032,0791
   Heavy fuel oil5,6005,2044,5606,5457,76018.6
   Natural gas18,27019,40422,45822,16221,215-4.3
   Light fuel oil182906510618069.8
   Natural gas to BOOTs2,7202,7322,6452,9392,921-0.6
Total installed capacity (MW), of which24,72627,04929,07430,80332,0153.9
   Renewable (wind and solar)4906876876876870
   BOOTs (thermal)2,0482,0482,0482,0482,0480
BOOTs=Build, own, operate, transfer schemes; ktoe=Kilotonne of oil equivalent. Source: EEHC

Solar plants

Meanwhile, 15 firms have been prequalified for a 200MW solar scheme in Kom Ombo that was launched before the announcement of the feed-in tariff. This is set to consist of 10 20MW photovoltaic cell solar plants.

In early December, it was reported that the prequalifiers had agreed collectively to finance topographical studies to be carried out at the Kom Ombo site by Hamza Associates, a local engineering firm. The companies include Scatec Solar and El-Sewedy, along with the local Orascom Construction, Italy’s Enel Green Power, Acwa Power of Saudi Arabia, Sun Power of the US, and the local Taqa Arabia.

One of the main challenges for the dozens of developers targeting Egypt’s renewables sector will be securing finance. There could be a shake-out of projects in the course of 2016, as some developers either fall by the wayside or opt to team up with other companies that have better access to finance.

The electricity ministry has given 39 investors lining up for solar projects in the Benban area a deadline of 23 December to raise letters of guarantee of £E22.85m each before proceeding to sign power-purchase agreements.

In a boost to the solar programme, the European Bank for Reconstruction & Development announced at the end of November that it is prepared to provide $500m in loans for solar power projects in 2016.

Government strategy

The heavy promotion of solar and wind power is part of a strategy to lessen Egypt’s dependence on natural gas and oil for its power generation. Another element in this is the addition of nuclear power to the energy mix.

The government’s strategy is to bring the proportion of natural gas in the electricity generating mix below 80 per cent within 10 years

At present, about 9 per cent of Egypt’s electricity consumption comes from renewables, with 8 per cent from hydroelectric plants and only 1 per cent from wind farms. The remainder comes from thermal power plants, almost all of which are designed to use natural gas as their primary fuel.

The use of natural gas in these plants has fallen to about 90 per cent, but that is mainly due to supply shortages, which are being addressed through LNG imports and the development of new gas fields. The government’s strategy is to bring the proportion of natural gas in the electricity generating mix below 80 per cent within 10 years.

Nuclear energy

Plans for a nuclear power station at El-Dabaa, west of Alexandria, go back to the early 1980s. They have come close to fruition on several occasions, only to be knocked off track. Finally, in November 2015 a contract was signed with Russia’s Rosatom to build a complex of four 1,200MW third-generation reactors at El-Dabaa, the first of which is set to come on stream in 2024.

The cost of the Rosatom scheme has not been disclosed, but it is likely to be in the region of $20bn. Egyptian companies will hold an initial 20 per cent stake in the operating company, eventually rising to 35 per cent. The contract stipulates that there will be a similar ratio of local input into the project.

Rosatom has committed itself to covering the bulk of the foreign currency costs through a 35-year project credit facility. The plant will be covered by a 40-year guarantee, and Rosatom will be responsible for supplying fuel and disposing of waste.

Other commercial terms, such as the tariff for sales of electricity from the plant, have yet to be disclosed.

Gas-fired plants

The renewables and nuclear projects have attracted attention as they are bringing something new to Egypt’s energy mix. However, natural gas-fired plants will still account for the majority of electricity generation for some time to come.

The gas-fired projects that are now under way can be split into three categories on the basis of their financing.

The first is the traditional development agency-financed model, which is being applied to the 1,950MW South Helwan project. This entails breaking the project down into multiple packages financed by different combinations of agencies.

Recent packages awarded include pumps for Germany’s KSP, electro-mechanical work to Spain-based Techint, switchgear to the local Egemac, and the water treatment plant to Veolia of France.

The largest orders, for steam turbines and steam generators, were awarded in 2014 to a Japanese consortium of Mitsubishi Heavy Industries and Toyota Tsusho, and to Italy’s Alsaldo Energia, respectively. The first unit is scheduled to come on stream in 2017.

The government is aiming to push capacity up to 60,000MW by 2020

For some of the more recent gas-fired schemes, including three 4,800MW plants to be built by Siemens, the financing has been described as engineering, procurement and construction plus, a form of corporate finance underwritten by government guarantees and export credit agencies.

The third category is the independent power project (IPP), based on project finance secured against the revenue to be earned by the operating firm. Most of the solar and wind projects will require financing along these lines, as will the 2,250MW Dairut combined-cycle IPP.

Dairut was first tendered in 2010, marking a revival of the IPP model after a hiatus of almost 20 years. Eventually a single bid was submitted in early 2015 by Acwa Power, which is now negotiating commercial details and exploring financing options.

Installed capacity

The most recent consolidated figures from Egyptian Electricity Holding Company show that in June 2014, Egypt’s total installed capacity was about 32,000MW. It is likely to have increased since then to at least 36,000MW.

The government is aiming to push capacity up to 60,000MW by 2020. It will probably fall short, because of the scale of the acceleration required and the difficulty in securing finance.

However, it has laid the groundwork for a significant increase in capacity, buttressed by a stronger financial base for the industry as a result of the gradual phasing out of subsidies.

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